In a stark warning about the health of American democracy, Federal Reserve chair Jerome Powell was compelled on Monday to publicly address a police investigation into the central bank, which he views as a politically motivated attack. The probe follows his refusal to bow to pressure from former President Donald Trump to cut interest rates.
A Line in the Sand for Central Bank Independence
The extraordinary situation prompted an unprecedented joint rebuke from three former Fed chairs. Janet Yellen, Ben Bernanke, and Alan Greenspan condemned what they labelled an "unprecedented attempt to use prosecutorial attacks to undermine [Federal Reserve] independence." They were joined by a cross-party group of former treasury secretaries and senior economic advisers.
In a powerful statement, the veterans of US economic policy drew a direct comparison with weaker states. "This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly," they wrote. They asserted that such tactics "have no place in the United States, whose greatest strength is the rule of law."
Market Context and Broader Headlines
The drama unfolding around the world's most influential central bank casts a shadow over global markets, including the FTSE 100. The incident raises profound questions about the stability of US state institutions and their ability to operate free from executive interference.
This political storm broke against a backdrop of significant corporate and economic news on Tuesday 13th January 2026. Key developments from the City included:
- Strong results from Whitbread and Games Workshop.
- Shares in semiconductor firm IQE soared on AI and defence chip demand.
- Barclays shares tumbled after a Donald Trump-linked credit card cap was announced.
- UK unemployment data was also a key focus for traders.
The High Stakes of Institutional Integrity
The intervention by the former Fed chairs underscores the severe long-term risks of politicising independent economic institutions. Their warning suggests that the very foundation of US economic success—the rule of law and operational independence—is under threat.
For investors and policymakers in the UK and beyond, the stability of the Federal Reserve is paramount. A Fed seen as bending to political pressure could lead to volatile inflation expectations and undermine the dollar's global standing, with ripple effects across all major markets. The events of this week serve as a critical test of America's institutional resilience.
